How are you helping businesses expand when you put money in a savings account?
You're not.
The only business you're helping is the bank that makes money from your savings account.
well the 3 choices are...
The interest you earn can be spent at local businesses.
Banks lend your saved money to businesses to help them expand.
By learning to save, you are increasing your value as a worker.
I don't like any of your choices. But your teacher is probably looking for the middle choice.
Since savings accounts earn less than 1% interest per year, you'd have to have $10,000 in the account to have $100 to spend a year.
When you put money in a savings account, you are not directly helping businesses expand. Savings accounts typically offer low interest rates, and the primary purpose of these accounts is to provide a safe place for individuals to store their money and earn a minimal amount of interest over time.
However, by keeping money in a savings account, you indirectly contribute to the overall stability and health of the banking system. This system plays a crucial role in providing businesses with the funds they need to expand.
Here's how the process generally works:
1. Deposit: When you put money into a savings account, you are essentially depositing it into a bank or financial institution.
2. Reserve Requirement: Banks are required to maintain a certain percentage of their deposits as reserves. These reserves act as a buffer against potential financial shocks and ensure that the bank can meet customer demands for withdrawals.
3. Lending: The banks use a portion of the deposited funds to provide loans and credit to individuals and businesses. This lending activity helps fund activities like business expansions, investments, and capital projects.
4. Economic Growth: When businesses receive loans, they can use the funds to expand operations, purchase new equipment, hire more employees, or invest in research and development. This, in turn, stimulates economic growth and job creation.
So, while the direct impact of keeping money in a savings account may seem minimal, the overall stability and functioning of the banking system, facilitated by customer deposits, indirectly help businesses expand and contribute to overall economic growth.